Europe is in danger of being split by a new 'Iron Curtain' as the deepening
economic crisis separates east from west, the EU has been told.

Hungary warned the growing split threatened to provoke outbreaks of social unrest and a flood of unemployed immigrants travelling to Western Europe in search of jobs.

Ferenc Gyurcsany, the Hungarian prime minister, called for a £169 billion bail-out of Eastern Europe to prevent a major crisis that would reverberate across the continent.

He spoke as nine Central and Eastern European countries – Poland, Hungary, the Czech Republic, Slovakia, Latvia, Lithuania, Estonia, Bulgaria and Romania – held an unprecedented breakaway summit before the meeting of all 27 EU member states in Brussels.

He said: "We should not allow a new iron curtain to be set up and divide Europe in two parts. This is the biggest challenge for Europe in 20 years. At the beginning of the 90s we reunified Europe. Now it is another challenge – whether we can unify Europe in terms of financing and its economy."

In a six-page letter to European leaders meeting for a crisis summit lunch, Mr Gyurcsany made dire predictions about the consequences of letting Eastern Europe, the EU's poorest countries, bear the brunt of a recession.

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He warned that if EU member states in Central and Eastern Europe faced a severe downturn, then other European countries would feel the knock-on effect of social unrest and an influx of millions of migrants.

"A significant economic crisis in Eastern Europe would trigger political tensions and immigration pressures. With a Central and East European population of around 350 million of which 100 million are in the EU, a 10 per cent increase would lead to at least five million additional unemployed within the EU," he wrote.

Mr Gyurcsany went on to forecast "massive contractions in economic activity and large-scale defaults" with governments in Eastern Europe refusing to pay back up to £89bn of debts owed to Western European banks.

"A 10 per cent default rate on the Eastern European external loan book would put significant further strain on the solvency of the European banking sector, the capital impact would be at least EUR100bn," he said.

The summit ended with EU leaders saying they were determined to avoid protectionist moves in response to the economic crisis.

European Commission president José Manuel Barroso said: "There was consensus on the need to avoid any unilateral protectionist measures."

But Angela Merkel, the German chancellor, dismissed the call for an Eastern Europe aid fund, saying: "I see a very different situation among eastern countries, I do not advise going into the debate with massive figures."

The gathering followed a bitter row over protectionism and Eastern European fears that larger Western EU economies, especially France and Germany, were engaged in protectionist bailouts of national industries.

France and the Czech Republic, representing the West versus East split, have been at the centre of a deeply damaging row over economic protectionism.

When announcing a £2.7 billion (EUR3bn) aid package to French car makers Renault and Peugeot Citroen last month, President Nicolas Sarkozy implied that the cash was in exchange for a promise not to shut French plants or move to cheaper sites "in the Czech Republic or elsewhere".

"This is the greatest crisis in the history of European integration," he said. "We do not want any new dividing lines. We do not want a Europe divided along a North-South or an East-West line; pursuing a beggar-thy-neighbour policy is unacceptable."

In a move to ease the tension, the European Commission declared itself satisfied with guarantees from Paris that the French plan to bail out its auto sector was not protectionist.

President Sarkozy insisted that accusations of French protectionism were "totally nonsensical things that do not reflect reality".

He claimed that the Czechs, and other countries, should be grateful for jobs in factories owned by French automobile makers.

"If we don't save the parent company then the subsidiaries will come down as well," he said. "You might well be surprised that we did not ask these countries whose friends we are, where these plants are in, not to help us in bailing out our automotive industry."

The French president insisted that the United States, rather than Europe, was the source of protectionist threats.

He said the situation in Europe meant no-one could accuse any country of being protectionist when the Americans had put up $30 billion (£21 billion) to support their automotive industry. "There, there is a risk of protectionism," he said.

Donald Tusk, the Polish prime minister, who hosted the meeting, said: "All participants agree that in the time of crisis, maintaining solidarity in Europe is of paramount importance. We would like Europe to do everything to avoid the temptation of protectionism and egoism."